Building sustainable value

Transcription

1 Building sustainable value Audited group results for the year ended 30 June 2005 Targeting construction in the developing world supported locally by steel and cement

2 Who are we? Previously Anglovaal Engineering hence Av-eng South African born and bred with 115 years in construction Separately listed on the JSE in 1999 Activities focused around three clusters Construction - mining, energy and heavy infrastructure client focus Steel & Allied steel and concrete products for the motor, manufacturing, mining and construction sectors Cement - cement, quarry products and ready mixed concrete Working in 40 countries and providing direct jobs Listed in the JSE s SRI Index since inception two years ago

3 Corporate objectives Return on average equity - 13,4% 0,5% short of target of 10% real return Headline earnings per share - 69% growth Net debt/equity ratio - 40% versus 54% a year ago versus 35% target

4 Highlights An about turn in Construction Grinaker-LTA : Losses reduced from R126m to R18m McConnell Dowell : Operating profit of R55m Strong performance from Steel & Allied Trident Steel : Automotive industry Grinaker-LTA Manufacturing : Residential market Outstanding results from Cement Perfectly timed tons of capacity Excellent operational performance All suspensive conditions met in BEE transaction with TisoGroup and other broad based empowerment partners Successful placement of a seven year R1bn convertible bond with coupon of 6.125%

5 Financial Review Dennis Gammie

6 Financial performance June 2005 June 2004 % Change Revenue R13,5bn R11,7bn +15 Operating Income R327m R227m +44 Operating margin 2,4% 1,9% +0,5 Net finance costs R167m R214m (22) Taxation R72m (R19m) - Headline earnings R364m R216m +69 Dividends 23 cents 14 cents +64

7 Key ratios June 2005 June 2004 % Change Return on average equity (%) 13,4 8,1 +65 Return on average capital employed (%) 14,2 9,9 +43 Interest Cover (times) 3,6 2,0 +80 Asset Turnover (times) 2,7 2,6 +4 Dividend cover (times) 4,0 4,0 - Net Debt : Equity ratio (%) (26)

8 Background issues IAS 17: Leases results in new interpretation for operating leases IAS 17: Leases also resulted in reclassifications IFRS 3: Business Combinations discontinues amortisation of goodwill Seven year convertible bond issued with 6,125% coupon

9 SA Construction Rm June 2005 June 2004 % Change Revenue Operating Profit (18) (126) +86 Operating margin (0.3%) (2.4%) +88 Assets Asset turnover Loss from JV s and construction associates of R33m (loss of R37m in 2004)

10 Australia & SE Asia Construction Rm June 2005 June 2004 % Change Revenue (7) Operating Profit (117) (51) (129) Operating margin (6.5%) (2.6%) (146) Assets Asset turnover (9) Profit from JV s and construction associates of R17m (profit of R18m in 2004)

11 Steel & Allied Rm June 2005 June 2004 % Change Revenue Operating Profit Operating margin 9.3% 9.7% (4) Assets Asset turnover

12 Holcim (46%) Rm June 2005 June 2004 % Change Revenue Operating Profit Operating margin 27.7% 23.6% +17 Assets Asset turnover

13 Net interest paid Issue of R1bn convertible bond in March 2005 enabled short term debt to be repaid More attractive interest rate terms Rm Net interest paid Interest income Interest paid Average prime rate Average fixed rate June ,9% 9,1% June ,8% 13,2%

14 Cost of share options Practice adopted several years ago Costs of all share options expensed regardless of whether they have vested or not Costs calculated as difference between closing price on 30 June and option price (strike) Costs attributable to subsidiaries included in operating expense R31 million in 2005 Costs attributable to Holcim (South Africa) expensed to income from associates & joint ventures R12 million in 2005

15 Earnings per share Cents June 2005 June 2004 % Change Headline earnings 93,5 55,3 +69 Earnings 99,3 48, NAV No change in weighted average number of shares

16 Balance sheet Equity movements Rm Opening shareholders funds Dividend paid Equity accounted reserve movements Foreign currency translation IAS 17 and leases Negative goodwill transfer Revaluation reserve Earnings for period Closing shareholders funds June (55) (6) June 2004* (124) (15) (358) (20) * June 2004 figures restated

17 Currency movements Movements versus the Rand June 2005 June 2004 % Change 2004 US Dollar Closing Average 6,68 6,23 6,28 6,86 +7 (9) Australian Dollar Closing Average 5,09 4,67 4,33 4, (4)

18 Borrowings Rm Interest bearing debt Cash Net debt Floating Fixed Short term Long term June % 85% 15% 70% June % 41% 22% 19%

19 Working capital Days 140 Jun-05 Jun Net working capital: days days Stock days Debtor days Creditor days

20 Capital expenditure Rm Replacement Expansion Total additions Depreciation Disposals Net (decrease)/increase June (384) (336) (252) June (393) (221) (201)

21 Reconciliation of cash balances Rm Opening net borrowings Cash generated by operations Net finance costs Working capital movement Tax Capital expenditure Dividends Assoc. costs & other investments Reclassification of leases Other Closing net borrowings June 2005 (1 351) 667 (167) (89) (76) (313) (55) (1 166)

22 Operational Review Carl Grim

23 Organisational structure CEO: Carl Grim FD: Dennis Gammie 100% 75% 75% 75% 75% 75% 46% McConnell Dowell Corporation Construction Opencast Mining Process Engineering Manufacturing Trident Steel Holcim (South Africa) Dave Robinson Howard Jones Brian Wilmot Nick Bell Doug Keet Ben Fourie Karl Meissner-Roloff Civil & Marine Mechanical & Pipelines Electrical Maintenance Building & Property Development Mechanical & Electrical Civils, Roads & Earthworks & Underground Contracting South African Operations Metallurgical Operations Steeledale Merchanting West African Operations Engineering Services Infraset Automotive East African Operations Project Management Duraset Cutting Marikana Mine MegChem (50%) Lennings Rail Coastal Branches Dudfield Factory Ulco Factory Blending Depots Stone & Sand Quarries Trident Sterling Tube Ready Mixed Concrete Trident Specialty Steels Slagment Tanga Cement (62,5%) Engineering, Construction & Mining Contracting Cluster Steel & Allied Cluster Cement

24 Aveng clusters Cement (equity accounted) (R4bn) 23% Engineering, Construction & Opencast Mining (R9bn) 50% Steel & Allied (R5bn) 27% Revenue 2005

25 Business segmentation McConnell Dowell Engineering & Corporation Project (14%) Management (3%) Grinaker-LTA Construction (37%) 2% 16% 33% 23% Trident Steel (23%) Grinaker-LTA Manufacturing (12%) Grinaker-LTA Opencast Mining (11%) 14% 12% R million R million

26 Construction McConnell Dowell Corporation R6,8 billion Grinaker-LTA Construction Significant recovery potential Focus on mining, energy and heavy infrastructure Grinaker-LTA Construction Gautrain downstream opportunities Soccer World Cup, Eskom and Transnet Mining investment Non-residential building McConnell Dowell Corporation China driven Oil price driven

27 Construction segmentation Mechanical & Electrical (26%) Building & Property Development (36%) Electrical Maintenance (23%) Civils, Roads & Earthworks & Underground Contracting (38%) Mechanical & Pipelines (23%) Civil & Marine (54%) Grinaker-LTA Construction (R5 billion) McConnell Dowell Corporation (R1,8 billion)

28 Construction Impact of Rand volatility ZAR/US$ Tender exchange rate Contract average currency rate Assumptions: 1. 3-month award 24-month contract 2. Projected exchange rates at current levels Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06

29 Construction Impact of Rand volatility on profitability Exchange rate loss/gain Forex Gain Forex Loss Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06

30 Impact of Rand volatility Case A: $100m Project - July Tendered profit Actual profit R41,5m Profit & Loss (Rands) Assumptions: 30% of costs in rands Paid in US$ 10% margin 3-month award period 24-month construction period Exchange rate benefits Months

31 Impact of Rand volatility Case B: $100m Project Oct Tendered profit 100 Actual profit Profit & Loss (Rands) Assumptions: 30% of costs in rands Paid in US$ 10% margin 3-month award period 24-month construction period Exchange rate loss (R106,3m) Months

32 Moving out of Africa Africa/Middle East (14%) Australia & SE Asia (11%) 10% South Africa (75%) 34% 56% Assets R7 259 million Assets R6 468 million

33 Construction order book Order book % of 2005 revenue Order book % of 2005 revenue Building & Property Development Civils, Roads & Earthworks & Underground Contracting Mechanical & Electrical Building & Property Development Civils, Roads & Earthworks & Underground Contracting Mechanical & Electrical Grinaker-LTA South Africa Grinaker-LTA - Africa

34 Construction order book Order book % of 2005 revenue Civil & marine Mechanical & pipelines Electrical Maintenance

35 Grinaker-LTA Construction Selected contracts Peermont Global Johannesburg Development Agency Mozambique Leaf Tobacco Technip / ExxonMobil TCTA Ministry of Public Works and Transport - Swaziland Mondi Limited Provincial Department of Housing Emperor s Palace upgrade (Hotel) Walter Sisulu Square of Dedication Tete Project (Warehouse) Jackets, Bridges & Piles for the EAP 1A Project Berg River Project (Dam) MR5 and MR6 Swaziland (Roads) Mondi Secondary Effluent Treatment Plant Low Cost Housing in Heidelberg R57m R104m US$27,5 m US$12m R481m R417m R71m R53m

36 McConnell Dowell Corporate Selected contracts GasNet Siemens PT Mitratama Perkasa & Kaltim Prima Coal Oil Tanking BTC & SCP Transit NZ Port Hedland to Telfer Gas Pipeline, Western Australia Kogan Creek Civil & Chimney Erection Contracts, Queensland Bengalon Coal Port & Processing Facility, Kalimantan, Indonesia Phase 6 Jetties Nos. 18 & 19, Jurong Island, Singapore Oil & Gas Pipeline Contracts, Azerbaijan Mercer to Long Swamp section of the Waikato Expressway, New Zealand AUD$103m AUD$60m USD$26m SGD$19m USD$270m (in JV) NZD$15m

37 Grinaker-LTA Opencast Mining Number 1 in Africa R900 million in assets Exchange rate sensitive Mali, Guinea, Tanzania, Botswana, Namibia and South Africa Grinaker-LTA Opencast Mining Marikana challenge R1,5 billion

38 Marikana dispute 18 Feb 2002 contract awarded for 5 years R12.15 to US$ Disagreement on Rise & Fall price adjustment mechanism (R130m at June 2005) Mediation in March and April 2004 failed Arbitration set for 28/29 April 2005 Agreement on 14 April to appoint auditors to quantify value of dispute - Report awaited

39 Order book Opencast Mining Order book % of 2005 revenue Order book % of 2005 revenue South Africa Africa

40 Grinaker-LTA Opencast Mining Selected contracts Sasol AngloGold Ashanti Wonderwater Opencast Coal Mine Sadiola Hill Gold Mine R2,03bn R750m Resolute Samantha Golden Pride Opencast Gold R1bn Ingwe Colliery Klipbank Opencast Coal Mine R1bn

41 Grinaker-LTA Process Engineering Grinaker-LTA Engineering & Project Management Upstream of construction on project value chain Attractive risk-adjusted opportunity Focus on mining and energy clients Growth opportunity for Aveng R340 million

42 Order book Process Engineering Order book % of 2005 revenue Order book % of 2005 revenue South Africa Africa

43 Grinaker-LTA Process Engineering Selected contracts Sasol Mopani Copper Mines (MCM) Anglo Platinum Sumo Collieries Natref Energem Nigeria Ltd Clear Ash Water Evaporator Replacement Mufulira Smelter Expansion Project Phase 1 Acp Acid Plant Rectification Sumo Coal Preparation Plant SWS Project Lagos Refined Product Facility Project R64,7m US$180m R150m R11m R48m EPCM : R37m Capex: US$43m

44 Aveng Construction order book Order book % of 2005 revenue Order book % of 2005 revenue McConnell Dowell Grinaker-LTA Construction Opencast Mining Process Engineering Australia & SE Asia Africa South Africa By activity By region

45 Construction order book (two years) R billions Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004 June 2005

46 Construction order book - (two years) % of revenue 140% 129% 120% 109% 115% 100% 80% 94% 102% 82% 91% 95% 82% 102% Target zone 60% 40% 20% 0% Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004 June 2005

47 Steel & Allied Trident Steel (23%) Grinaker-LTA Manufacturing (12%) Solid and consistent financial performance Leading positions and large market shares Revenue contribution to Aveng increased to 37% from 26% over two years R5 billion

48 Steel & Allied Trident Steel Grinaker-LTA Manufacturing Steel coil: Shaped blanks for automotive industry Steel sheet: Cut, bent & drilled for manufacturing industry Steel sections: Cut for construction industry Steel tube manufacturing capacity updated Speciality steel for specialised manufacturing Steeledale: Rebar and mesh Infraset: Precast concrete products for infrastructure e.g. railway sleepers, concrete pipes, culverts and poles, pavers and landscaping products Duraset: Steel & concrete products for mining e.g. roof bolts, concrete/timber stope support systems Lennings Rail: Rail maintenance services

49 Steel & Allied market segments Revenue 2005 Manufacturing (35%) Automotive (34%) Mining (13%) Exports (2%) Exports (9%) Construction (22%) Construction (85%) Trident Steel (R3,2 billion) Grinaker-LTA Manufacturing (R1,8 billion)

50 South African steel market Tonnage (% change) 19.8% 15.8% 9.9% 4.7% 7.5% 7.3% 4.0% 11.4% 6.4% 4.0% -8.2% -9.4% -10.5% -8.0% -9.7% -5.8% -8.2% -15.4% Prices Month Structural steel Flat plate Cold rolled coil Electro galvanised coil July (4,7%) (4,7%) August (4,0%) - - October ,8% 7,5% - - November ,5% - - January % 12% February 2005 (5,0%) 6,5% - -

51 Cement Holcim (South Africa) Outstanding financial performance R4 billion Holcim (South Africa) Number 2 in South Africa with 30% to 34% market share 4,1mt of cement capacity Nature and timing of additional capacity being reviewed Sand, stone, ready mixed concrete, slagment, silica fume and 62% of Tanga Cement DK2 R165m upgrade to meet world class emissions standards Aveng owns 46%

52 Industry cumulative average monthly sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

53 Looking forward

54 Looking forward - Cement demand Residential Construction 22.5% 18.6% 18.1% 12.8% 11.2% 8.2% 7.5% 12.0% 12.0% 10.9% 6.3% 6.6% 4.5% 3.0% -5.5% -6.9% Non-residential 4.6% 4.9% 9.5% 7.7% 9.8% 5.6% CEMENT MARKET Residential 57% 1.0% Non-residential 30% Construction 13% -8.4%

55 Looking forward - Mass housing Affordable housing (Government focus) Low income housing (Financial Sector Charter) Reduce backlog of 1,4m units by 50% by 2014 Gauteng budget R50bn for the next five years Target market is the unemployed Total investment required estimated to be R40bn Target market is R1 500 to R7 500 monthly income bracket

56 Mass housing Cement consumption 000 tons Affordable housing (Government) Low income housing (Financial Services Charter) 700 Cement usage SARB Forecast Aveng Forecast

57 Looking forward - Cement sales -9.3% 1.9% 7.1% -2.6% -10.0% 9.9% 4.5% 6.6% 17.3% 13.9% 8.8% 7.0% 5.0% 2.0% -2.4% -2.7% Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06

58 Looking forward - Eskom R93bn investment by 2010 R62bn Power stations R15bn Transmission R9bn IPP Projects First projects have already been approved and others still in feasibility study phase Aveng involved in building most of South Africa s power stations Currently involved in building two power stations in Australia

59 Looking forward - Transnet Custodian of port, rail and pipeline infrastructure Phase 1 of infrastructure investment plan of R37bn to be split R15bn Spoornet R14,2bn National Ports Authority R4,5bn SA Port Operations R3,4bn Pipeline Aveng s has international ports experience and extensive rail capabilities

60 Looking forward - Soccer World Cup Award of 2010 World Cup Initial delivery Adjusted delayed delivery Unchanged delivery Establishment of L.O.C Government enabling legislation 2010 Audit of provinces & stadia Design, build and upgrade stadia SAFA infrastructure completion FIFA final inspection Gautrain award Gautrain Airports Roads & stadium precincts Hotels & private developments CAF VP Soccer Tournament Soccer World Cup

61 Looking forward Government infrastructure expenditure Civil/Roads/Transport 24% Infrastructure maintenance 19% Low cost housing 13% Building 24% Residential services 13% Provincial infrastructure 7% Government infrastructure spending to 2008 R167 billion

62 Looking forward - Civil engineering activity Billions Turnover Awards

63 Looking forward Automotive industry Number of Vehicles Vehicles - Domestic Production and Export Export Domestic Production Source: NAMSA

64 Looking forward Fixed investment 35% Gross Fixed Capital Formation as a Percentage of GDP 30% 25% 20% 15% 10% 5% 0% Assuming Government meets its objectives: GDP growth of 4% GFCF/GDP of 25% by 2014 Then construction industry will approximately double in size over 10 years

65 Conclusion Aquarius Platinum and Aveng need to find a way forward on Marikana Mine Construction has turned and has considerable upside potential Steel & Allied and Cement will continue to deliver earnings growth

66 Conclusion Gearing acceptable and financial structures sound Trailblazing BEE initiatives in line with Construction Charter Macro variable favourable stable rand, high oil & commodity prices, active China and positive fixed investment climate in South Africa Resources available to benefit from increased level of work

67 Prospects Aveng will deliver on its three corporate objectives in 2006 A growth in headline earnings per share of CPIX + 10% A return on average equity of CPIX + 10% A net debt to equity ratio of 35%

68 Building Sustainable Value

69 Sustainability

70 Health and safety Safety is of paramount importance employees attended safety courses Numerous safety awards including NOSCAR, NOSA and BIFSA DIFR 0,69 (2004: 0,62) considerably better than the industry average of 8,6 Achieved five million injury free hours on a single site HIV/Aids is our biggest health challenge Clear HIV/Aids policy focused on preventative measures Wellness programme developed with Lifeline

71 Environment Committed to conducting business in accordance with the principles of sustainable development Protection of the environment Welfare of the broader community Specific actions include ISO in contracting companies Compliance with all relevant environmental legislation Compliance with environmental management commitments of clients Ensuring compliance by subcontractors and suppliers

72 Black Economic Empowerment 25% of South African managed assets sold to black consortium TisoGroup (36%) Woman s Trust (12%) Community Empowerment Trust (20%) Trust benefiting employees (24%) and black business partners (8%) Suspensive conditions met in February 2005 Aveng s BEE transaction in line with Draft Construction Charter

73 Construction Charter Industry, Union and Government stakeholders involved Charter will incorporate Charter Document (95% complete) Scorecard (7-year targets) Way forward Department of Public Works to ratify Charter document DTI to issue Charter as a Code of Good Practice Aveng is well aligned with transformation focus of the Charter

74 Corporate Social Investment 1% of prior year s headline earnings committed to deserving community investment projects CIDA city campus Infrastructure development of greater Roodekop for benefit of local community Other examples: Borokanelo Trust projects in Kimberley region Kutlwanong Home craft development trust Development of schools in Dudfield area